OPEC+ to cut output by 100,000 bpd in October; oil prices soar

In an anticipated move OPEC+, the alliance of Organization of the Petroleum Exporting Countries (OPEC) and other oil major oil exporters decided to reduce oil output by 100,000 barrels per day (bpd) in October. 

With this cut, the output levels next month will be at par with the levels in August. Last month, OPEC+ agreed to raise oil output by 100,000 barrels per day in September.

In a statement OPEC said that the ministerial meeting decided to “revert to the production level of August 2022 for OPEC and non-OPEC participating countries for the month of October 2022 as per the attached table, noting that the upward adjustment of 0.1 mb/d (million barrels per day) to the production level was only intended for the month of September 2022”.

“The OPEC and Non-OPEC Ministerial Meeting noted the adverse impact of volatility and the decline in liquidity on the current oil market and the need to support the market’s stability and its efficient functioning,” it said.

The meeting noted that higher volatility and increased uncertainties require continuous assessment of market conditions and readiness to make immediate adjustment to production in different forms, if needed, and that OPEC+ has the commitment, the flexibility, and the means to deal with these challenges and provide guidance to the market, it said.

The next ministerial meeting of OPEC+ is scheduled for 5 October.

A cut in production was expected after Saudi Arabia recently said current oil prices do not reflect the supply constraints in the market.

Crude oil prices have ease from the multi-year high levels in the past couple of months amid concerns of rising interest rates and global recession along with the rising Covid-19 cases in China and eventual lockdowns in the country.

The output cut, however, comes at a time when the world is concerned of energy supplies amid the Russia-Ukraine conflict. Russia recently halted gas supplies to Europe raising concerns of a major crisis.

The production cut and eventual concerns of supply woes have lifted global oil prices. At the time of writing the article, the October contract of Brent on the Intercontinental Exchange was trading at $96.80 a barrel, lower by 4.06% from its previous close.

The October contract of West Texas Intermediate (WTI) rose 3.83% to $90.20 a barrel.

Investors are also eyeing developments on the Iran Nuclear Deal. If the west and Iran strike a deal, the sanctions on Iran are expected to be lifted allowing the country to supply oil to the global market.

Ravindra Rao, head of commodity research at Kotak Securities said that crude is also supported by concerns about Russian supply as G7 countries agreed to impose a price cap on Russian oil, although major buyers India and China are not likely to join.

The output cut and the eventual rise in prices is a major development for India as the country imports around 85% of its energy requirement.

Amid the Ukraine crisis, despite objections from the US, India has resorted to cheaper oil imports from Russia in a bid to achieve energy security.